Stats based. I don't play in 3rd so what it looks like doesn't bother me, and I'm roleplaying someone who doesn't want to die, so she wears the best gear she can find despite what it looks like. This ain't no fashion parade, son!
However, early on in the game I came across some armour (possibly Forsworn?) which had better stats so I switched. Later on I went to 3rd out of curiosity and was surprised to notice that my apparently better armour was little more than a fur bikini. Odd to me, but what the heck, stats are stats.